Investing 101

INVESTING 101

I'm often asked if I will manage my clients' money. The answer is no, for a number of reasons:

I believe strongly in the entire financial plan. History shows that the actual selection of individual stocks and bonds is not nearly as important as asset allocation and how the entire plan works together - income, investment, and spending. We won't invest for you directly, but we will figure out your best asset allocation.

There are many ways to successfully invest and build a portfolio. I am a very strong believer in just one method, which I detail below. I'm not sure I'd be acting in the best interests of all my clients if I only used this one technique (even it has been very successful).

As my senior citizenship looms, I don't have a yearning for hundreds of panicked phone calls from clients when the market is down. (If you're currently freaking out about the market, read this.)

I'm not a licensed broker, so while I can give advice, I cannot actually take over the funds and invest them.

That being said, I have a long history of successful investment management and a solid philosophy of what works and what doesn't (backed by empirical evidence). Under the heading of "putting my mouth where my money is", I will share these theories and actual practices with you in the posts below. These are not necessarily recommendations on my part, but it is an overview of the process that I do use for managing my own and my family's investments.

Well, not everything but certainly all the fundamentals. Here is my primer on investing in four charts.

Don't be afraid to invest. If you keep all your savings in cash, you might sleep well at night. But you might wake up 20 years from now and realize that your money, in terms of spending power, is only worth 1/2 to 1/3 of where it started out. This chart shows what happens if you keep all your money in cash compared to the growth of investing in the other major asset categories.

Be patient. Your returns are not going to come easily, quickly, or necessarily consistently. However, as this chart shows, over time your average returns will certainly show a degree of consistency and growth if you remain patient.

Asset Allocation. Strict asset allocation has been the foundation of successful investing for decades. No one can predict which asset classes will go up in any year nor the degree of growth (or loss). But if you follow a strict asset allocation model, you'll always be "buying low" and "selling high". This chart illustrates how hard it is to predict in advance the performance of each asset class, which is why asset allocation (and diversification) is so important.

Stay Invested. Don't try to time the market and don't bail out at the first sign of a downturn. In today's world of instant news and stock market volatility, most investment gains come over a very small number of days, as displayed in this chart, and if you "miss" those days, you could affect your returns for years to come.

Hopefully, you are now really excited and ready to read on! But if not, you likely have the fundamentals that you need.